Amid the escalating prevalence of illicit tobacco trade causing the year-on-year decline of excise tax collections, a group of House leaders led by the cousin of President Ferdinand Marcos Jr. today filed a bill seeking to suspend the annual tobacco excise tax increases.
Deputy Speaker and Isabela 1st District Rep. Antonio “Tonypet” Albano
The multi-partisan group, which includes two House Deputy Speakers, highlighted that the Sin Tax Law’s twin goals of increasing government revenue and protecting public health are being severely impacted by illicit trade.
The lawmakers noted that the government’s excise tax collection has been declining since 2022 due to the prevalence of illicit tobacco products.
Deputy Speaker and Ilocos Sur 2nd District Rep. Kristine Singson Meehan
“From a peak collection of P176 billion in 2021, tobacco excise revenues decline to P160 billion in 2022. In 2023, the Bureau of Internal Revenue (BIR) reported that the government has lost around 15.9% or P25.5 billion in revenue due to illicit trade in cigarettes, ending collections in 2023 with P135 billion,” House Bill 11279 noted.
“This lost revenue amounting to billions of pesos adversely affected the government’s funding for health programs,” the authors said.
Ilocos Norte 2nd District Rep. Angelo Marcos Barba
Sponsors of the bill include Deputy Speaker and Isabela 1st District Rep. Antonio “Tonypet” Albano, Deputy Speaker and Ilocos Sur 2nd District Rep. Kristine Singson Meehan, Ilocos Norte 2nd District Rep. Angelo Marcos Barba, Kabayan Party-list Rep. Ron Salo, Ifugao Lone District Rep. Solomon Chungalao, and PBA Party-list Rep. Margarita Nograles-Almario.
They said, “While it is in the country's legitimate interest to impose higher taxes to sin products, the increase in the amount of excise taxes imposed on registered cigarette products unintendedly resulted in the proliferation of illicit and counterfeit products due to their low-entry point and affordability. Destroying legitimate businesses through excessive taxation, while illicit traders continue to dominate the market is unacceptable. This undermines the nation’s goal fostering a stronger economy, which ultimately benefits the greater public.”
Kabayan Party-list Rep. Ron Salo
To address the issues, the House leaders said, it is imperative for the government to recalibrate its existing revenue measures and ensure that our tax laws do not unduly incentivize nor give premium to the illicit traders at the expense of legitimate businesses.
The bill proposes a temporary suspension of one year to the automatic annual increase of five percent tax imposed among tobacco products, heated tobacco products, vapor products, cigars, and cigarettes.
Ifugao Lone District Rep. Solomon Chungalao
The proposed temporary tax increase suspension is expected to narrow the price gap of a legitimate cigarette product compared to illicit cigarettes. “This is expected to encourage the consumers of illicit cigarettes to shift into purchasing legitimate products,” the Bill said.
The proposed measure also aims to address the proliferation of mislabeled vapor products, where some items are mislabeled as containing only freebase or conventional nicotine but actually contain salt nicotine to evade the imposition of higher taxes, which resulted in millions of excise taxes evaded by illicit traders who exploit the regulatory gaps under Republic Act No. 11467.
It is also said that the distinction between salt nicotine and freebase or conventional nicotine under Republic Act No. 11467, no longer has a valid basis. Thus, having a unified tax rate for all vapor products will substantially address the problem of misdeclaration by unscrupulous traders and, therefore, will be more beneficial for the government.
PBA Party-list Rep. Margarita Nograles-Almario
Aside from the declining revenue collection and increased smoking prevalence, the Bill noted that illicit trade is a threat to national security.
“Illicit trade of tobacco products, which may now include vapor products, have been linked to the financing of terrorist organizations,” it said.
Citing The Global Illicit Trade in Tobacco: A Threat to National Security study by the United States Department of Homeland Security, it said the agency has acknowledged the growing threat of illicit tobacco trafficking as early as 2015.
The paper was quoted stating, “tobacco smuggling may fuel transnational crime, corruption, and terrorism and, as it converges with other criminal activities, it tends to undermine the rule of law and the licit market economy, and creates greater insecurity and instability in many of today's security ‘hot spots’ around the world.”
The lawmakers said, “This Bill seeks to lessen the burden on the legitimate businesses, level the playing field, discourage illegal trading practices, ensure fair competition in the market, and strengthen national security. This measure is intended to support the sustainability and growth of legitimate enterprises, while ensuring receipt of government revenue through just and equitable taxes.”